Jajah's Mobile Ambitions

The company hopes to become the Skype of the cell-phone world, and has introduced a service allowing users to call overseas on the cheap

You might call Jajah the clunkier Skype. Since February, the Mountain View (Calif.)-based startup has allowed people to make calls from their landlines or cell phones for free or at very low rates. Jajah is funded by Sequoia Capital, the same venture capitalists that invested in YouTube and Apple (AAPL).

Though it was dubbed the Skype challenger, Jajah was far more cumbersome. For the service to work, you needed to register at a Web site and then type in the number you wanted to call from as well as the number you wanted to reach. Many other Voice over Internet protocol (VoIP) providers offered the same service, so Sequoia's decision to invest in Jajah mystified many industry insiders.

Until now, that is. On Sept. 26, Jajah disclosed its goal to become the Skype of the mobile world.


  The startup has just introduced Jajah Mobile, a service that allows users to make calls via Jajah without entering data into a Web site. To use the service, you go to Jajah's Web site and sign up. If you use one of about 80 phone models the service supports, including those from Nokia (NOK), Jajah Mobile will then send you a short text message with a software plug-in. With software in place, you can dial the person you want to reach. It's free if you're calling another registered member in one of dozens of countries, including the U.S. and Canada, listed on Jajah's Web site. For some other countries, there's a small fee. The company says it will support all cell-phone models by yearend.

The offering could alter the international calling market. Today, only about 13% of home phone users call internationally, and even fewer call other countries from their mobiles, figures Jill Aldort, an analyst with consultancy Yankee Group. By drastically cutting international rates to as little as 2 cents a minute, Jajah could spur international calling via cell phones.


 And because the service pays wireless service providers' access fees, it could end up rewarding these carriers with incremental revenues. But the carriers shouldn't be deceived: Eventually, Jajah will be their rival. "The wireless operators now are in the same position wireline operators were in five years ago," says Jon Arnold, principal at consultancy J. Arnold & Assoc. VoIP providers like cable companies, Vonage (VG), and Skype, a property of eBay (EBAY), have begun luring telcos' landline customers away with the promise of cheaper long-distance.

Jajah, along with its VoIP rivals, Rebtel and Skype, could start the same sea change in mobile calling. Here's why: Jajah doesn't require use of outgoing minutes, a major component of wireless plans today. Say you have a wireless plan with 500 outgoing minutes and unlimited incoming calling. To make a call, you would ring Jajah. But because Jajah initiates calls between you and the party you are calling, you would use only your incoming minutes.

That means you can make Jajah calls from your phone even when your 500 minutes are up—and your carrier won't get any overage revenue. Potentially, using Jajah, users could downsize to a cheaper and more limited wireless plans, and still make as many, or more, calls.

That math could mean that mobile VoIP market's growth "could be even stronger [than traditional, landline VoIP's]," says Will Stofega, an analyst with consultancy IDC. Arnold believes Jajah, which doesn't plan to release its user numbers until February, already has some 1 million customers. The company's user base, revenues, and minutes of use have been more than doubling every month, says Roman Scharf, a Jajah co-founder.


  Jajah and other mobile VoIP service providers' revenue opportunity might be greater than Skype's, too. Unlike Skype, which doesn't collect revenue from most callers, Jajah says some 80% of its users end up paying for calls to nonregistered users and for extra calling features, such as conferencing. In fact, "we'll have more paying users than Skype by February or March," Scharf says.

And Jajah doesn't plan to stop at taking on Skype in mobile. The company is in discussions to embed its calling technology into social-networking sites and portals. The first batch of announcements will come in October, Scharf says. These sites—online address book provider Plaxo is the only one announced one so far—will have a major monetary incentive to partner with Jajah: The startup has 30% margins, and can offer participating sites some $10 to $20 per user per year in revenue sharing, he says.

Still, Jajah will be facing formidable competitors on the Web and in mobile. Skype has already garnered millions of PC users, and is growing at a fast clip, even being embedded into phones from the likes of Philips and Netgear. And Skype, Rebtel, and a slew of other startups are pushing into the mobile market, too. The Internet calling race is on, and Jajah hopes to join a growing pack in coming to a cell phone near you.

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